As the coronavirus spreads around the world, more airlines are restricting or canceling routes to and from China. These precautions have put a major damper on cross-border trade and commerce, and now many US companies selling to China are scrambling for alternatives.
Irrespective of the virus, US beauty brands generally have issues selling to China because of animal testing requirements, which they refuse to abide by, due to pledges against animal cruelty.
Because of these requirements, many American beauty brands sell through cross-border e-commerce, a new channel that enables them to ship packages one by one from the US, or from bonded warehouses in China. We take a look at how each channel is affected below.
In short, cross-border sellers have three ways to reach China: postal routes, business commercial shipping, and bonded warehousing. We discuss all of these channels below and share tips on what brands should do in this time of crisis.
E-commerce demand soars: As coronavirus makes global headlines, Chinese consumers
turn to online shopping for essential products from the US and other foreign markets.
Postal Routes Are Being Cut
Postal shipping is common for sellers that are just starting to sell to China, as it doesn’t require the business to own a Chinese entity or pre-register goods with customs. The packages are regarded as personal items and shipping is relatively cheap; however, the shipping times can be as long as 3-4 weeks and the items sometimes have issues getting through China customs.
Inside China, the government has ensured that China Post (the national post office) keeps operations running. However, many countries such as Spain, Singapore, and Germany have stopped postal shipping to China altogether, while the US has temporarily suspended time guarantees on shipments destined for China and Hong Kong.
The US also has put a hiatus on forwarding transit postal mail from other countries to China. For instance, it will no longer forward China-bound mail from, say, Mexico or Canada. Thus, there’s no guarantee on when a shipment can make it to the end customer in China, and sellers should think of new ways to ship their products.
Business goes on: China is getting back to business to keep US and
foreign goods flowing to the biggest retail market in the world.
Supply for Cross-Border Business Commercial Transportation Has Shrunk
Under the business commercial clearance scheme, cross-border sellers can pre-register their products with customs; their products are shipped one by one from US warehouses to Chinese consumers, yet they go through customs faster and are entitled to lower taxes.
But cross-border transportation has been severely affected by the coronavirus crisis. Airlines all over the world have cut flights to and from China. Experts estimate that international airlines have cut passenger capacity by 80% for flights to and from China. Domestic Chinese airlines, most of whom are owned by the Chinese government, have been able to stay afloat and have cut passenger capacity by only 40%.
And yet this is not enough to meet demand for all of the US exports going to China. In addition, medical-related cargo has been given priority on cargo flights, so it is much more difficult to find space for normal shipments.
Logistics companies now have to find creative ways to get cargo to China—oftentimes having to stop over in Japan, South Korea, or Hong Kong, resulting in longer delivery times and higher prices. Air freight rates from Frankfurt to Shanghai have jumped by nearly 200%. This spike can be excessive for a cross-border e-commerce parcel that may cost 100-200 RMB (~$14-29 US) for the end customer.
Some logistics providers are aggregating shipments and chartering entire cargo flights, which can cost roughly 3.8 billion RMB ($550 million US) to ship from the US to China for a 100-ton capacity plane. The challenge is pooling enough shipments to make this cost-effective; a plane would need to fill up with 60 tons of cargo to make it worthwhile.
Bonded Warehousing May Be the Best Option
A better option for cross-border sellers is to use bonded warehouses, which are located in Chinese free-trade zones. Under this model, cross-border sellers ship products in bulk to China, after which they are stored in these warehouses. The products are then pre-registered with customs and only shipped after the end customer makes an order.
Only after the customer makes an order does the package move through customs and the customs tax is paid. The shorter lead time results in a superior customer experience, though brands face additional inventory risk in case the products cannot be sold. This model is generally used for brands with high existing demand.
Originally the coronavirus crisis delayed these warehouses from resuming operations by 1-2 weeks after Chinese New Year, but now things are back to normal and demand for warehousing space is high. Last-mile delivery services are still operating normally; all of the express delivery companies in China are in full drive as customers stay inside and order their essentials online.
The customs bureau at Ningbo, a port city just south of Shanghai, even reported year-over-year growth of 42.5% in January and February for cross-border imports, reaching 2.4 billion RMB ($345 million US). Ningbo was one of the earliest cities to adopt the bonded warehouse model for cross-border imports and is a big transit point for e-commerce shipments.
Granted, part of the increase comes from the import of medical-related and sterilization equipment. Sterilization detergent imports grew by 1.6x and demand for food and mother & baby items such as milk powder skyrocketed as consumers began to stock up on essentials and local pharmacies and grocery stores started running out of stock.
- Postal routes to and from China are being cut around the world, significantly slowing down delivery lead times.
- Cross-border shipping on commercial flights has also seen supply being cut as airlines cancel flights to and from China. Domestic Chinese airlines are still in operation but it’s not enough to meet demand. Transiting in a third country or chartering flights are alternative options.
- Bonded warehouse shipping is in high demand as e-commerce sellers look to preserve the customer experience and provide customers with quicker delivery services. Though it may be hard to ship products to China, last-mile delivery services are still functional and effective to get items to the end customer.